IT sector hiring again, recovery in sight by second half of FY21

Investments in automation and by the BFSI segment are driving IT sector recovery

Infosys-tech-park-IT-sector-building-employees-1-Bhanu Representative image: The Infosys tech park | Bhanu Prakash Chandra

The Indian IT sector, though initially buffeted by the COVID-19 pandemic and subsequent lockdown, has begun its recovery, with hiring back to almost 60 per cent of normal levels according to experts.

The sector is expected to bounce back in the second half of the current financial year, given its competitive advantage against multinational companies, as well as its significant cash reserves. As economic activity moves towards normalcy, new investments in technology and automation could help Indian IT companies garner new deals.

Besides automation, the banking, financial services and insurance segment (BFSI) has maintained consistent spending on technology despite the overall slowdown in business, as the BFSI segment had to maintain functionality across the globe despite the COVID-19 pandemic. There has also been a recovery in the US retail segment that may also add to the recovery for the Indian IT sector.

“We expect regular spend by the BFSI segment despite the slowdown, the recent recovery in the US retail segment with technology spend on building omni-channel and in-store analytics, indicated by strong recent deals by HCL Technologies and TCS. There have been positive trends in the healthcare vertical as well, which would be beneficial for HCL and Wipro, [companies] that have higher exposure in this vertical, in conjunction with technology investments in Robotic Process Automation (RPA),” observes Amit Chandra, Assistant Vice President- IT Research HDFC Securities.

Chandra further observed that Indian IT have consistently gained market-share across market cycles —as well as across technologies—when compared to other MNC technology giants. He adds that Indian IT companies have deep technology expertise and an impressive track record with large enterprise accounts will help them further score over their global peers.

There is no doubt that IT is the backbone for many industries and its recovery is expected to be sharper than that of other sectors once normalcy is restored. “Automation and AI would drive many functions even in non-IT sectors in Asia and therefore it is a big fortune waiting for the sector— though pricing could be a damper given the current state of industry,” remarks Subramanyam Sreenivasaiah, CEO at Ascent HR.

However, the IT industry’s fortunes remain linked to the corporate spending in the West. While the IT spending for 'keeping the lights on' projects remains unaffected, new initiatives driven by enterprise-level strategic direction will take time to show green shoots.

“One important sign that economists watch out for to identify if the economy is getting back on track is the kick-off of inventory replacement cycle. If the growth sustains thereafter, it will call for new IT investments, eventually triggering a demand revival for Indian IT industry,” said Alok Shende of Ascentius Consulting.

As normalcy is expected to be restored in the coming months, there has been a growth in IT recruitment for certain skill sets and that indicates that recovery is round the corner. Indian IT services firms are largely dependent on demand from user-industry sectors in the US and Europe . Though recovery has begun, the volume of business is not yet at pre-COVID-19 levels. The cloud of uncertainty continues. Hence, many of them are still keeping their belts tight.

Project outlays are being restricted. As a result, while hiring in IT services has begun, it is still currently at about 60 per cent of January-March 2020 levels.

“IT recruiting is now taking place in various sectors that are digitising and automating their work processes. Financial services companies are automating their call centres to deploy RPA, education providers are going online, financial services companies are launching apps to access retail customers and are automating credit appraisals, restaurants are going online with their own apps. All these developments are giving rise to hiring technologists or engineers in new areas of technology such as robotics, AI, machine learning, big data technologies and cyber security,” Aditya Narayan Mishra, director and CEO of CIEL HR Services told THE WEEK.